Pay Check Protection Program (PPP)*
Updated: May 11, 2021
Originally Posted Apr. 2, 2020 Updated 5.11.2021
NOTICE: Applications for First and Second-time applicants closes May 31, 2021. At this point, only community financial institutions (CFI) have funding left to disperse. RCAC is the only CFI that covers Alaska and still has their PPP up. You have to use the SBA form and email it to a loan officer.
Are you a small business that has major payroll expenses and needs help bridging these costs (up to $10,000,000) until the economy can open back up? Then check this program out!
*grant-like component to the program
NOTE: “After more than a year of operation and serving more than eight million small businesses, funding for the bi-partisan Paycheck Protection Program has been exhausted. The SBA will continue funding outstanding approved PPP applications, but new qualifying applications will only be funded through Community Financial Institutions, financial lenders who serve underserved communities. The SBA is committed to delivering economic aid through the many COVID relief programs it is currently administering and beyond.”
PAYCHECK PROTECTION PROGRAM
This is a loan program offered by the Federal Government that has the possibility of being fully forgiven. It's best to consider this a 'bridge' loan to get businesses through the gap in economic activity with the main focus to keep up payroll. Loan amounts are to cover an 8 week period between when the loan was obligated and the end of the 24-week allowable cover period. Businesses can receive loan amounts up to 2.5 times their average payroll expense (this includes all expenses to payroll not just salary or wage amount) but no more than $10,000,000 (first draw applicants, $2,000,000 for second draw applicants).
After the end of your cover period, your lending party will evaluate the total amount of eligible expenses the loan money was spent on. This is the maximum amount that can be forgiven. This amount can be reduced: (1) if payroll expenses were reduced in excess of 25 percent of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the covered period, (2) if FTE numbers were not maintained without eligible exceptions, (3) if more than 40% of PPP loan funds were used on non-payroll activities and/or (4) if PPP loan funds were used on non-eligible expenses. An eligible employee is "employee who did not receive, during any single pay period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000."
Who is an Eligible Recipient?
501 (c) 3
501 (c) 19
Other eligible self-employed individuals
Discuss with your loan officer to see if you are an eligible self-employed individual.
What expenses will be forgiven?
Payroll Expenses (for employees making less than $100,000 annually);
Including: Salaries, wages, tips & commissions, Employee Benefits, Employee Vacation, parental, family, medical and sick leave (excluding qualified sick and family leave wages for which a credit is allowed under section 7001 and 7003 fo the Families First Coronavirus Response Act), housing stipends or allowance provided as part of compensation, employer contributions for group life, disability, vision, and dental insurance benefits, State and local taxes on compensation.
*Property Damage Related to Civil Unrest;
*Necessary Supplier Costs; and
*COVID-Related Protective Measures.
Remember, at least 60% of the forgiven amount must have been used for payroll
*Expanded eligible items as part of the Paycheck Protection Flexibility Act and the Economic Aid Act.
What should I do to prepare for participating in this loan?
1) Figure out if you are eligible
2) Figure out how much you can or need to borrow: Note a change that took place on 3/3/21 now allows Small Businesses to use their gross income for PPP calculations instead of net income.
3) Decide if you are in a position to get the loan forgiven and if not, can you take on that level of debt
4) Apply, with the current condition of the economy, many businesses are applying for these loans and there is a significant wait time from applying until you actually see fund amounts.
Where do we go to apply for this loan?
NOTE: At this point, only community financial institutions (CFI) have funding left to disperse. RCAC is the only CFI that covers Alaska and still has their PPP up. You have to use the SBA form and email it to a loan officer.
Find which banks are eligible lenders: www.sba.gov/paycheckprotection/findhttps://www.sba.gov/paycheckprotection/find
The Federal and State Governments are offering a variety of funding programs for small businesses. As you evaluate each program and its benefits for your business, make sure you understand if you can utilize a program (such as the Shuttered Venue Operators Grant) if you are already currently utilizing a different program (such as the Paycheck Protection Program).
Additional Random Questions Answered
How long do I have to apply for the PPP?
The PPP is available until May 31, 2021.
What is the covered period for the loan?
The Covered Period is either (1) the 24-week (168-day) period beginning on the PPP loan disbursement date, or (2) if the borrower received its PPP loan before June 5, 2020, the borrower may elect to use an eight-week (56-day) Covered Period.
When does the applicable forgiveness covered period begin?
The CARES Act provided for an eight-week forgiveness covered period that starts on the date the lender makes disbursement of the PPP loan to the borrower. The lender must disburse the loan no later than 10 calendar days from the date of loan approval.
The Paycheck Protection Program Flexibility Act of 2020, which became law on June 5, 2020, extended the covered period for loan forgiveness from eight weeks after the date of loan disbursement to 24 weeks after the date of loan disbursement, providing substantially greater flexibility for borrowers to qualify for loan forgiveness. The 24- week period applies to all borrowers that received forgiveness prior to December 27, 2020, but borrowers that received an SBA loan number before June 5, 2020, have the option to use an eight-week period.
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act), enacted on December 27, 2020, changed the definition of “loan forgiveness covered period” to the period beginning on the date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement.
How is my forgivable amount reduced?
(1) If your total payroll expenses on workers making less than $100,000 annually decrease by more than 25 percent, loan forgiveness will be reduced by the same amount;
(2) If your FTE decreases compared to the base year used to calculate the loan;
(3) If you spent PPP Loan funds on non-eligible PPP expenses; and
(4) If you spent more than 40% of PPP Loan funds on non-payroll costs
What do I need to do to maximize forgiveness?
First, this list is not a final comprehensive list but is intended to make sure you are thinking of the requirements to receive full forgiveness.
(1) Review the Loan forgiveness application: SBA PPP Loan Forgiveness
(2) Determine the number of Full-Time Equivalent (FTE) employees your loan was based on to ensure you meet FTE requirements
Remember to keep track of offers to rehire if employees were laid off. The PPP requires employers to maintain their FTE numbers based on the FTE numbers the loan was calculated on. In the Interim Final Rule, the SBA and Treasury issued de minimis exemptions from the CARES Act's limits of FTE if an employer offered to hire employees back and those employees rejected offers of re-employment, your business could not find qualified employees and/or your business has not restored operations due to coronavirus-related restrictions. READ THE INTERM FINAL RULE
(3) Use at least 60% of funds on Payroll costs;
(4) Do not decrease employee's pay by more than 25%
(5) Maintain loan records in a centralized location to reduce the scramble to find needed information when requesting forgiveness
How should borrowers account for federal taxes when determining their payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?
Payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.
What are the differences in requirements for first Draw and Second Draw users?
A business is eligible for a First Draw PPP Loan if the business has 500 or fewer employees or the business meets the SBA employee-based or revenue-based size standard for the industry in which it operates (if applicable). Similarly, First Draw PPP Loans are also available for qualifying tax-exempt nonprofit organizations described in section 501(c)(3) of the Internal Revenue Code (IRC), tax-exempt veterans organization described in section 501(c)(19) of the IRC, Tribal business concerns described in section 31(b)(2)(C) of the Small Business Act, and eligible nonprofit news organizations6 that have 500 or fewer employees or meet the SBA employee-based size standards for the industry in which they operate. First Draw PPP Loans also are available for housing cooperatives, eligible section 501(c)(6) organizations, and eligible destination marketing organizations that employ not more than 300 employees.
In order to be eligible for Second Draw, businesses must be able to demonstrate that they experienced a 25 percent reduction in gross receipts in a 2020 calendar quarter compared to the same quarter in 2019. While first draw PPP loans were capped at $10 million per borrower based on payroll costs in 2019, second draw PPP loans have a maximum of $2 million per borrower based on payroll costs in either 2019 or 2020. Additionally, first draw PPP loans were subject to a $20 million maximum for businesses that were part of a single corporate group, but second draw loans are subject to a $4 million maximum. First Fraw PPP Loans have a 500-employee limit and Second Draw PPP Loans have a 300- employee limit. Second Draw users must also be able to certify that all First Draw PPP loan funds were used "Only for eligible expenses".
What is the maturity date of a PPP Loan?
If a PPP loan received an SBA loan number on or after June 5, 2020, the loan has a five-year maturity. If a PPP loan received an SBA loan number before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years. The promissory note for the PPP loan will state the term of the loan.
I am a seasonal employer, how is my average monthly payroll expense calculated?
If it is determined you are a seasonal employee, your average monthly payroll expense will be based off a 12 week period starting February 15, 2019 (or March 1 if chosen by the borrower).
I am a year-round employer with significantly more employees in the summer than winter, how will I be considered?
If this is your situation, talk with the lending party to see what your options are. To get the maximum benefits of the loan forgiveness program, a business must maintain payroll expenses during the 8 week period at a similar amount as the year before based on what your calculated average monthly payroll expense was determined to be.
I am a new employer, how will my monthly payroll be determined?
Payroll information available prior to February 15, 2020, will be used. If you are expected to start a business but have not yet or began after February 15, 2020, your business will generally be excluded from this loan program. Talk with your local lending entity.
I pay employees through 1099's, how do I utilize this program?
First, remember 1099 individuals can apply for this program on their own so encourage them to do so. Second, talk with your lending party to see how payroll expenses will be calculated if you primarily pay workers through 1099's as these don't go into the calculation for the loan.
What if I already applied for and/or received an SBA Disaster Relief Loan or Economic Injury Disaster Loan? Am I still eligible to apply for this loan program?
The short answer is yes, but it becomes more difficult. You cannot take out the loan on expenses a loan is already taken out on. If you have already taken out an SBA loan, there is an option to roll over that loan into the new loan but as Neil Bradley with the US Chamber of Commerce advised, if you can wait to take out the loan, wait to see if this new program is more beneficial for your business.
What if my business is still making money due to accounting practices or some other reason but is expected to need the assistance in a month or more? Are we still eligible?
Talk with your lending party but the requirement for applying is "good faith certification that the uncertainty of current economic conditions makes the loan request necessary to support ongoing operations."
Can I utilize the employee retention credit or delay payment of employer payroll taxes if I take out a paycheck protection loan?
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, which was enacted as Division EE of the Consolidated Appropriations Act, 2021, Pub. L. No. 116- 260, 134 Stat. 1182, on December 27, 2020, permits an employer that received a First Draw PPP Loan or Second Draw PPP Loan to claim the Employee Retention Credit if the employer is otherwise an eligible employer satisfying the requirements for the credit. However, payroll costs that are qualified wages for the Employee Retention Credit are not eligible for loan forgiveness if the employer elects to claim the credit for those amounts. (Additional guidance from the IRS is available at https://www.irs.gov/pub/irs-drop/n-21-20.pdf.)
I am an officer or business owner of the business, can I get paid?
Again, the simple answer is yes... if you are receiving your pay through payroll or regularly scheduled withdraws and not taking it from profits of the business. The most important thing to understand with this loan is that it does not differentiate between employees (i.e. who is on payroll) or for the reason a business is closed (if mandated to be closed as a nonessential business). The most important thing is to keep payroll expenses, even if paying people while they remain home, at a similar amount to the calculated average payroll expense in order to maximize the forgivable amount of the loan.
If I already laid-off or furloughed workers, should I bring them back?
First, you need to decide if you can take advantage of this loan program and get it forgiven.
Then, employers who have already furloughed workers but wish to take advantage of the PPP, you can still be forgiven for the full amount of your payroll cost if you rehire your employees or can prove offers for rehire were rejected.